Kostezky, N.I. v Milder Elfman Szmerling Krycer Pty Ltd [1995] FCA 186

CATCHWORDS BANKRUPTCY - formal defects or irregularities - effect of non compliance with Bankruptcy Act, 1966, s 41(1) upon validity of bankruptcy notice. Bankruptcy Act 1966 Cth, s 41 Bankruptcy Rules, Rule 8 Re Pollard; ex parte Lensing Management Co Pty Ltd 33 FCR 284 NICHOLAS ILYA KOSTEZKY Ex parte MILDER ELFMAN SZMERLING KRYCER PTY VN 1996/94

Olney J Melbourne 31 March 1995.

IN THE FEDERAL COURT OF AUSTRALIA) GENERAL DIVISION ) BANKRUPTCY DISTRICT OF THE ) STATE OF VICTORIA ) No VN 1996/94 Re: NICHOLAS ILYA KOSTEZKY Debtor Ex parte: MILDER ELFMAN SZMERLING KRYCER PTY Creditor Coram: Olney J Place: Melbourne Date: 31 March 1995 REASONS FOR JUDGMENT On 19 August 1994 a bankruptcy notice addressed to the debtor was issued on the application of the creditor. The notice was founded upon a judgment obtained by the creditor against the debtor in the Magistrates' Court at Melbourne on 2 October 1992. Pursuant to an order for substituted service, service is deemed to have been effected 23 December 1994. The period for compliance with the notice was 21 days after service. On 13 January 1995 the debtor filed an application seeking orders to set aside the bankruptcy notice and to extend the time for compliance. An affidavit was filed in support of the application in which it is alleged that the debtor claimed to have a set off or counter-claim against the creditor exceeding the amount of the judgment debt. Upon the return of the debtor's application on 22 February 1995 the Registrar extended the time for compliance with the bankruptcy notice to 23 February 1995 and on the latter date the period was further extended to 22 March 1995, being the date to which the hearing of the application was adjourned. In the time between the first return of the application and the hearing on 22 March 1995 a number of affidavits were filed. With one exception they all had to do with the question of whether or not the debtor had a set off or counter-claim exceeding the amount of the debt which could not have been set up in the proceedings in which the judgment was obtained. On 21 March 1995 the debtor filed an affidavit raising for the first time the question of the form of the bankruptcy notice which he says does not comply with the Bankruptcy Rules. By the time the matter came on for hearing the debtor had abandoned his original grounds and pursued only the question of the validity of the notice. The bankruptcy notice served on the debtor (omitting formal parts) was in the following form: TO: NICHOLAS ILYA KOSTEZKY of 32 BADRICK STREET, WARWICK, WESTERN AUSTRALIA, 6024 WHEREAS: MILDER ELFMAN SZMERLING KRYCER PTY., of 3rd floor, 3 WELLINGTON STREET, WINDSOR, VICTORIA 3181 (hereinafter referred to as "the judgment creditor") has claimed that the sum of $7,370.43 is due by you to them under a final judgment (or order) obtained by them against you in the Magistrates' Court at Melbourne on the 2nd day of October 1992, being a judgment (or an order) the execution of which has not been stayed: THEREFORE TAKE NOTICE that within TWENTY-ONE (21) days after service of this notice on you, excluding the day on which this notice is served on you, you are required - (a) to pay the sum of $7,370.43 so claimed by the judgment creditor to the judgment creditor; or (b) to secure the payment of the sum referred to in paragraph (a) to the satisfaction of the judgment creditor or compound the sum so specified to the satisfaction of the judgment creditor: AND FURTHER TAKE NOTICE that if, within the period set out above, you fail either to comply with either of the abovementioned requirements of this notice or to satisfy the Federal Court of Australia that you have a counter-claim, set-off or cross demand equal to or exceeding the sum specified in paragraph (a), being a counter-claim set-off or cross demand that you could not have set up in the action (or proceeding) in which the judgment (or order) was obtained, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you. The notice was endorsed in the margin: "Amended the 5th day of December 1994 in pursuance of the order of M. Ennis dated the 2nd day of December 1994" Served with the bankruptcy notice was a copy of an order made by Deputy Registrar Ennis on 2 December 1994 as follows: The Registrar Orders pursuant to Section 33(2)(b) of the Bankruptcy Act that: 1. Leave is granted to amend Bankruptcy notice No 1996 of 1994 by: (i) substituting "final judgment (or order)" for "final judgment/final order" wherever the latter occurs, (ii) in paragraph (b) substituting "... referred to in paragraph (a) to the satisfaction of the judgment creditor..." for "... referred to in the last preceding paragraph to the satisfaction of the Federal Court of Australia or the judgment creditor...", (iii)substituting "action (or proceeding)" for "action/proceeding", (iv) in the Note on page 2, line 4 and 5 substituting "...sub-section 41(7) ..." for "... sub-section (7.) of section 41..." and by (v) on page 2 deleting "... (name of the solicitor for the judgment creditor, or the name of the judgment creditor, as the case may be)...". Date Entered: 2 Dec 1994 M. ENNIS (Sgd) DEPUTY REGISTRAR IN BANKRUPTCY The debtor's point is a short one. He says that paragraph (b) of the bankruptcy notice is not in proper form because it fails to state that as an alternative to the payment of debt, the debtor could secure payment to the satisfaction of either the creditor or of the Court. In the form actually served on the debtor, the bankruptcy notice referred only to the alternative of securing the debt to the satisfaction of the creditor and made no reference to his right to secure such payment to the satisfaction of the Court. Section 41 of the Bankruptcy Act provides: 41(1) A bankruptcy notice: (a) shall be in accordance with the prescribed form; and (b) shall be issued by the Registrar. (2) The prescribed form of bankruptcy notice shall be such that the notice: (a) requires the debtor named in it, within a specified time (being the time referred to in subparagraph 40(1)(g)(i) or (ii), whichever is appropriate) to: (i) pay the judgment debt or sum ordered to be paid in accordance with the judgment or order; or (ii) secure the payment of the debt or sum to the satisfaction of the Court or the creditor or his agent, if any, specified in the notice or compound the debt or sum to the satisfaction of the creditor or his agent, if any, specified in the notice; and (b) states the consequences of non-compliance with the requirements of the notice. Rule 8 of the Bankruptcy Rules provides: 8 For the purposes of paragraph 41(1)(a) of the Act, a bankruptcy notice shall be in accordance with Form 4. So far as it is presently relevant Form 4 in Schedule 1 to the Bankruptcy Rules provides: THEREFORE TAKE NOTICE that within days after service of this notice on you, excluding the day on which this notice is served on you, you are required - (a) to pay the sum of $ so claimed by the judgment creditor to (here insert "the judgment creditor" or, if the judgment or order requires payment to be made to a court or a person other than the judgment creditor, the name and address of the court or the other person to whom payment is required to be made);